The Commodity Channel Index, more commonly known as the CCI, was originally developed as a way to judge overbought and oversold conditions for commodities. However, it has come into widespread use for all manner of financial instrument, whether stocks, indices, ETFs, cryptocurrencies, or anything else whose price fluctuates.
The CCI is a separate line chart which is between the -100 and +100 lines the majority of the time. However, it does push above these boundaries, and by no means should an instrument be considered overbought or oversold simply because it has crossed above or below its 100 line. On the contrary, some traders interpret clear moves above or below the 100 line to suggest an important new trend change (either up or down, respectively).
Below, for example, is Tesla Motors (TSLA) with the CCI in early 2013. The CCI pushed far above 100, paused briefly, and once again pushed and stayed above 100 for an extended period. In retrospect, this was the beginning of a powerful multi-hundred percent move higher.
Because the CCI is calculating, relatively to a given financial instrument, how high or low present price levels of relatively to its history, the CCI can indeed by a useful cyclic indicator for items that are themselves cyclic in the nature of their prices.
The crude oil ETF (symbol USO) shown below spend many months cycling within a broad range, and the CCI was helpful in determining those turning points taking place. If, on the other hand, USO had spent months steadily climbing higher, these “ups and down” of the CCI would have been misleading.
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